JPMorgan, BofA Results May Show Weaker Revenue as Lending Stalls

JPMorgan, led by Chief Executive Officer Jamie Dimon, 55, may report adjusted net income rose 41 percent over the year- earlier quarter to $4.68 billion, according to the median estimate of 14 analysts surveyed by Bloomberg. Photographer: Andrew Harrer/Bloomberg

April 12 (Bloomberg) -- U.S. banks such as JPMorgan Chase &
Co. and Bank of America Corp. may report weak revenue for the
first quarter after lending by the industry dropped in almost
every category.

Bank loans and leases fell $87.4 billion to $6.97 trillion
from the end of 2010 through March 30, or 1.3 percent, according
to Federal Reserve data. Deposits at U.S. banks rose the same
percentage to $7.97 trillion, showing households and businesses
are still hoarding cash instead of borrowing, analysts said.

“While loan growth tends to be seasonally weak in the
first quarter, this quarter is tracking worse than seasonality
would suggest,” Barclays Capital Inc. analysts led by Jason
Goldberg wrote in an April 8 report. “We fear companies have
been disappointed.”

Investors will get their first look at the quarter’s
results tomorrow when New York-based JPMorgan, ranked second by
assets in the U.S., is scheduled to report. The biggest lender,
Charlotte, North Carolina-based Bank of America, will report
April 15, followed next week by New York-based Citigroup Inc.
and San Francisco-based Wells Fargo & Co., ranked third and
fourth by assets.

Profits may have increased even with declining revenue as
lenders set aside fewer funds to cover loan losses and in some
cases released reserves they’ve already built up, said Matt
Burnell, a banking analyst at Wells Fargo. Cost reductions may
also help the bottom line in a smaller way, Burnell said.

New Regulations

Lack of loan demand is just one of the constraints on
revenue facing banks as new regulations limit proprietary
trading and fees on overdrafts and debit cards. Bank stocks
trailed this year’s 5.3 percent rise in the Standard & Poor’s
500 Index, with the 24-company KBW Bank Index little changed.

While trading revenue was credited for bolstering last
year’s profit, lenders still depend on net interest income, the
money made on lending and securities investment. That accounted
for 46 percent of 2010 revenue at Bank of America and 53 percent
at Wells Fargo. The figure was 50 percent for JPMorgan and 63
percent for Citigroup.

Profit Estimates

Bank of America, headed by CEO Brian T. Moynihan, 51, may
report a 2.8 percent decline in profit to $3.09 billion on a 19
percent decline in revenue to $26.5 billion, according to a
Bloomberg survey of 14 analysts. The bank told investors in
January that net interest income would decline in the first
quarter from the last period of 2010, and then level off
“sometime in the second.”

Revenue may fall 20 percent at Citigroup, led by CEO Vikram
Pandit, 54, and 1.3 percent at Wells Fargo, headed by John
Stumpf, 57, according to Bloomberg’s survey. First-quarter
profit may rise 41 percent to $3.56 billion at Wells Fargo, and
decline 36 percent to $2.84 billion at Citigroup, according to
Bloomberg’s survey. Spokesmen for all four banks declined to
comment.

Oppenheimer & Co. analyst Chris Kotowski estimates that
banks in his coverage universe, which includes the four largest,
will say loans outstanding declined by about 1.5 percent,
according to a March 24 report.

Weak spots include U.S. consumers, who are cutting credit-card use and slowing home purchases. Closed-end residential
mortgage loans fell 3.3 percent in the first quarter, while
credit-card and other revolving loans fell 1.2 percent,
according to the Fed. Consumer and residential home loans
account for about 54 percent of total defined bank lending, Fed
data shows.

Commercial Lending

Some of the biggest banks are still constrained by weak
balance sheets or aren’t replacing loans with new ones when they
mature, CreditSights Inc. analysts led by David Hendler wrote in
an April 10 note. For example, JPMorgan may cut as much as $10
billion from its credit-card portfolio in the first quarter, and
said its residential real-estate book may decline as much as 15
percent per year, Hendler wrote.

Lenders may not get much help this time from investment-banking and trading revenue, which analysts are predicting may
fall for the fourth straight year-over-year quarter. Guy
Moszkowski at Bank of America lowered first-quarter earnings
estimates last month at Citigroup and JPMorgan, as well as
Goldman Sachs Group Inc. and Morgan Stanley, saying trading
revenue won’t rebound as much as he had expected from a weak
fourth quarter.

Commercial Lending

One area of strength may be commercial and industrial
loans, used by companies to purchase inventory or improve
technology and other capital-intensive parts of their business.
Total C&I loans increased to $1.25 trillion in the week ended
March 30, the seventh week of increases in the last nine, Fed
data show. Wells Fargo’s average loan balance advanced 1 percent
in the first quarter, fueled by C&I lending, Goldberg estimates.

“That’s likely to continue; the business sector is doing
well in general,” said Stephen Stanley, chief economist at
Pierpont Securities LLC in Stamford, Connecticut, and a former
Fed economist. Demand isn’t stronger because the cash hoard held
by U.S. corporations “limits their appetite” for bank loans,
Stanley said.

Nonfinancial corporations based in the U.S. held $1.89
trillion in liquid assets, including cash, at the end of
December, according to the Internal Revenue Service.

“That seems to be the one bright spot,” said Burnell at
Wells Fargo. For everything else, “you’re still looking for
negative loan growth.”